By CONSTANCE L. HAYS

Published: August 4, 2004

Martha Stewart's legal problems continue to batter the company that bears her name, with worse-than-expected losses across the entire business after her federal criminal conviction. In a conference call with investors yesterday, the chief financial officer said Martha Stewart Living Omnimedia, under pressure from the continuing negative publicity around what Ms. Stewart has called ''a small personal matter,'' would continue to lose money through the end of the year.

The executive, James Follo, predicted losses of 50 cents a share for the current quarter, which ends Sept. 30, and additional unspecified losses in the year's final quarter. Losses reported yesterday totaled 39 cents a share, about 18 percent more than the 33 cents predicted by many analysts, with income falling in every area, from publishing to television to merchandise sales, once a bright spot. Corporate expenses continued to rise, in part because of retention bonuses for some employees and severance payments to others.

To stem the losses, the company plans to shut down its mail-order catalog business and eliminate two dozen more employees, paring the payroll to 450 from 558 at the beginning of this year, Mr. Follo said. An anticipated $49 million payment from Kmart, which is guaranteed in the company's merchandising contract with the discount retailer, will be paid early next year. In the meantime, Mr. Follo said, the company will spend about $40 million of its $158 million cash reserves.

That use of cash concerned one analyst. ''I would have expected them to do better in the fourth quarter,'' said Dennis B. McAlpine of McAlpine Associates, a Scarsdale, N.Y., research firm, who recommends that investors take a short position on the stock. While the company has no debt, it is unlikely that it will be able to find a lender, given its heavy losses, he added.

Sharon L. Patrick, the chief executive of Martha Stewart Living Omnimedia, cited Ms. Stewart's legal situation, and all the publicity, for the company's troubles but suggested the worst was over.

''We are moving ahead with a significant amount of the uncertainty behind us,'' she said.

But lawyers for Ms. Stewart are appealing the verdict in her criminal trial, which could result in a new trial and a fresh wave of publicity about her sale of shares of ImClone Systems in December 2001. She can remain free until the appeal is resolved, although she could choose to begin serving her sentence before then. Arguments before the United States Court of Appeals for the Second Circuit have been scheduled for early December.

In March, Ms. Stewart was convicted of lying to federal investigators who were looking into her sale of nearly 4,000 ImClone shares, a trade she said took place because of an agreement between her and her stockbroker to sell if the shares fell below $60. The broker, Peter E. Bacanovic, was also convicted of lying about the reasons for the trade.

Ms. Stewart was sentenced on July 16 to five months in prison followed by five months of home confinement, which Ms. Patrick called ''the most lenient penalty the judge believed she could impose under the sentencing guidelines.'' Mr. Bacanovic received the same sentence and is also free pending his appeal. Ms. Stewart turned 63 yesterday, which prompted Ms. Patrick to wish her a happy birthday on the conference call.

Following her sentencing, Ms. Stewart stood outside the courthouse and said, ''Whatever happened to me personally shouldn't have any effect whatsoever on the great company Martha Stewart Living Omnimedia.''

The results for the second quarter, which followed her conviction, showed otherwise. Total revenues plummeted 33 percent, to $44 million, compared with $65.8 million in the second quarter of last year. The company said that its publishing revenues, by far the largest part of the business, declined to $23.7 million from $39.6 million in the quarter last year, primarily a result of fewer ad pages and lower rates per page.

With the September issue, Ms. Stewart's flagship magazine Martha Stewart Living will play down her name, but will still include it on the cover. An advertising campaign called ''Take a New Look at Living'' is planned to begin next month and run through November, Ms. Patrick said. Everyday Food, a digest-size publication introduced last year, is expected to lose money because of an advertising campaign and efforts to increase circulation, Mr. Follo said. It no longer includes the words ''from the kitchens of Martha Stewart Living,'' because, Ms. Patrick said, it is ''its own independent brand.''

In the company's television business, where Ms. Stewart's ''Martha Stewart Living'' program lost half its viewers immediately after the verdict, revenue fell to $3.1 million, less than half the $6.6 million reported for the second quarter of last year. The program has been suspended for the coming year. Still, the company announced a new show to be broadcast on public television, beginning in January, that is derived from its Everyday Food magazine. It will feature five chefs from Ms. Stewart's company, though there will be no appearances by Ms. Stewart herself. It will be produced by Martha Stewart Living Omnimedia and distributed by WETA, the public television station in Washington.

Corporate expenses jumped to $13.3 million from $11.1 million a year ago. The company attributed the increase to ''higher compensation-related costs,'' including retention bonuses paid to crucial employees and the costs of a stock plan that was redone after the share price fell following revelations about Ms. Stewart's ImClone trade.

Photo: Sharon L. Patrick, chief of Martha Stewart Living Omnimedia, said a new ad campaign was planned. (Photo by Chester Higgins Jr./The New York Times)(pg. C3)